Everyone wants to increase their savings in a safe way. No one wants to take risk. And there is nothing wrong in this. With this thinking in mind, most investors wait for NFO. The full form of NFO is New Fund Offer. NFO is launched to launch a new mutual fund scheme. This is the initial stage of a mutual fund scheme. It has a fixed subscription period. As soon as this period is completed the NFO closes. Everyone wants to increase their savings in a safe way. No one wants to take risk. And there is nothing wrong in this. With this thinking in mind, most investors wait for NFO. The full form of NFO is New Fund Offer. NFO is launched to launch a new mutual fund scheme. This is the initial stage of a mutual fund scheme. It has a fixed subscription period. As soon as this period is completed the NFO closes.
No investment is safe. There are definitely risks involved. In this article I will talk to you about the risks you need to be aware of.
Lack of Track Record
Before investing anywhere, the investor looks at what the record of that company has been in the past. How to behave in different market conditions
And on the basis of that record only, it is decided whether to invest in a company or not. And if you have to invest then how much to invest based on the risk. But when it comes to NFO, there are no such records on the basis of which investment decisions can be taken. The absence of records cannot predict how the fund will behave in different market conditions. Because of this, investing in NFO is very challenging.
Uncertain Performance
You have just read that taking any decision regarding investment in NFO can be very risky due to lack of records. However, the new theme or strategy may seem tempting to you. But when it comes to money, investing despite uncertain performance may be unwise. Investors may face a higher level of risk due to the lack of a proven track record.
Limited Information
The biggest problem for investors in NFO is that the information given in the offer documents that are made available to investors during the subscription period is very limited. Existing funds, in contrast, provide detailed historical data and analysis. It can be challenging to assess the fund’s potential based on this limited detail.
No Immediate Liquidity
If you like the flexibility of buying and selling units of Naffo on the stock exchange then this is what you need to know. In fact, to buy and sell units on the stock exchange, it is necessary that the fund is officially launched and listed on the stock exchange. This entire process may take some time. And lack of liquidity may cause you problems in buying and selling your units on the stock exchange.
Possibility of Overpricing
This often happens when the value of the unit of NFO exceeds the prescribed value. The market value of which may exceed the intrinsic value of the assets. In such a situation, you will not be able to get a fair price for a unit. And a good investor always waits until the share comes at a reasonable price. So that they can avoid the dangers caused by overprice.
Exit Load and Lock-in Period
Some NFOs may charge a fee called exit load if you sell your purchased units during the NFO. But some NFOs come with a lock-in period wherein you cannot sell your units before a certain period. All these can increase the expenses of investing in your NFO, which can increase the cost of your investment and put additional burden on you financially. Therefore, before investing in NFO, take some time and consider your needs.
Limited Diversification
Diversification of investments can reduce your risk. But the possibilities of diversification in NFO are less. Generally, asset management companies (AMCs) launching NFOs attempt to re-bundle existing portfolios to provide diversification to the NFO.
Conclusion
While NFOs can offer fresh investment opportunities, they also come with their own set of risks. Therefore, thorough research and due diligence are crucial before investing in an NFO. Always consult with a financial advisor before making any investment decisions.
*Disclaimer: This information is for educational purposes only and should not be taken as investment advice.*
FAQ’s
1. What is NAV (Net Asset Value)?
Net Asset Value (NAV) is the net value of an investment fund’s assets less its liabilities, divided by the number of shares outstanding. It is most commonly used in the context of a mutual fund or an exchange-traded fund (ETF). NAV represents a “per-share” value of the fund, which makes it easier to be used for valuing and transacting the fund shares.
2. What is Intrinsic Value?
Intrinsic value is a measure of what an asset is worth. This measure is arrived at by means of an objective calculation or complex financial model. It is different from the current market price of an asset. However, comparing it to that current price can give investors an idea of whether the asset is undervalued or overvalued.
3. What is Overpricing?
Overpricing refers to the practice of setting a price for a product or service significantly higher than its initial perceived value. Essentially, it means charging more than customers are generally willing to pay for a particular offering. Overpricing can have negative consequences for small businesses and most everyday products.
4. What is a Subscription Period?
A subscription period is a required element of a subscription plan. It determines how often the customer is billed and, in some cases, how often recurring purchases are shipped or digitally delivered. Periods can be defined on the order of days, weeks, months, or years.